HR Om11 ch05

Design of Goods
and Services 5
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 5-1
Learning Objectives
When you complete this chapter you
should be able to :
1. Define product life cycle
2. Describe a product development system
3. Build a house of quality
4. Explain how time-based competition is
implemented by OM
© 2014 Pearson Education, Inc. 5-4

Learning Objectives
When you complete this chapter you
should be able to :
5. Describe how products and services are
defined by OM
6. Describe the documents needed for
production
7. Explain how the customer participates in
the design and delivery of services
8. Apply decision trees to product issues

Goods and Services Selection
► Organizations exist to provide goods or
services to society
► Great products are the key to success
► Top organizations typically focus on core
products
► Customers buy satisfaction, not just a
physical good or particular service
► Fundamental to an organization's
strategy with implications throughout the
operations function
Goods and Services Selection
► Goods or services are the basis for an
organization's existence
► Limited and predicable life cycles
requires constantly looking for,
designing, and developing new
products
► New products generate substantial
revenue

Product Decision
The objective of the product decision

is to develop and implement a
product strategy that meets the
demands of the marketplace with a
competitive advantage
© 2014 Pearson Education, Inc. 5 - 10

Product Strategy Options
► Differentiation
► Shouldice Hospital
► Low cost
► Taco Bell
► Rapid response
► Toyota

Product Life Cycle
Cost of development and production
Sales, cost, and cash flow
Sales revenue
Net revenue (profit)
Cash
flow
Negative
cash flow Loss
Introduction Growth Maturity Decline
Figure 5.2

Life Cycle and Strategy
Introductory Phase
► Fine tuning may warrant
unusual expenses for
1. Research
2. Product development
3. Process modification and
enhancement
4. Supplier development

Product Life Cycle
Growth Phase
► Product design begins to

stabilize
► Effective forecasting of capacity
becomes necessary
► Adding or enhancing capacity
may be necessary

Product Life Cycle
Maturity Phase
► Competitors now established

► High volume, innovative
production may be needed
► Improved cost control, reduction
in options, paring down of
product line

Product Life Cycle
Decline Phase
► Unless product makes a special

contribution to the organization,
must plan to terminate offering

Product-by-Value Analysis
► Lists products in descending order

of their individual dollar
contribution to the firm
► Lists the total annual dollar
contribution of the product
► Helps management evaluate
alternative strategies

Generating New Products
1. Understanding the customer
2. Economic change
3. Sociological and demographic
change
4. Technological change
5. Political and legal change
6. Market practice, professional
standards, suppliers, distributors

Product
Concept
Development Stages
Feasibility Figure 5.3
Customer Requirements
Functional Specifications
Product Specifications Scope for

Scope of design and
product Design Review engineering
development teams
team Test Market
Introduction
Evaluation

Quality Function Deployment
1. Identify customer wants
2. Identify how the good/service will satisfy customer
wants
3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows
5. Develop customer importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical
attributes

QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants
assessment
Competitive
What the Relationship
customer matrix
wants
Target values Weighted

rating
Technical
evaluation
House of Quality Example
Your team has been charged with

designing a new camera for Great
Cameras, Inc.
The first action is
to construct a
House of Quality

Interrelationships
House of Quality Example How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
What the
customer wants
Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Low electricity requirements
Aluminum components
High number of pixels How to Satisfy
Ergonomic design
Customer Wants
Auto exposure
Auto focus

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
High relationship Technical

Attributes and
Evaluation
Medium relationship
Low relationship
Lightweight 3
Easy to use 4
Reliable 5
High resolution 1
Relationship matrix
Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Relationships between
the things we can do
Aluminum components
High number of pixels
Ergonomic design
Auto exposure
Auto focus

Interrelationships

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Lightweight 3
Easy to use 4
Reliable 5
High resolution 1
Our importance ratings 22 9 27 27 32 25
Weighted rating

Interrelationships
How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Company B
Company A
How well do competing
products meet customer
wants
Lightweight 3 G P
Easy to use 4 G P
Reliable 5 F G
Easy to hold steady 2 G P
High resolution 1 P P
Our importance ratings 22 5

Interrelationships
How to Satisfy

Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Failure 1 per 10,000
Panel ranking
Target values
(Technical
2 circuits
attributes)
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G

Aluminum components
High number of pixels
Ergonomic design
Auto exposure
Company A
Company B
Auto focus
Completed
Lightweight 3 G P
House of Easy to use 4 G P
Quality Reliable
Easy to hold steady
5
2
F G
G P
High resolution 1 P P
Our importance ratings 22 9 27 27 32 25
Failure 1 per 10,000

Target values
Panel ranking
(Technical
attributes)
2 circuits
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
Company B 0.6 50% yes 2 ok F
evaluation
© 2014 Pearson Education, Inc. Us 0.5 75% yes 2 ok G 5 - 32
House of Quality Sequence
Deploying resources through the organization
in response to customer requirements
Quality
plan
Production
process
Production
Specific
House
process
components
components
House 4
Specific
Design
characteristics
characteristics
3
House
Design
2
requirements
Customer
House
1
Figure 5.4
Organizing for Product
Development
► Traditionally – distinct departments
► Duties and responsibilities are defined
► Difficult to foster forward thinking
► A Champion
► Product manager drives the product
through the product development
system and related organizations

Organizing for Product
Development
► Team approach
► Cross functional – representatives from
all disciplines or functions
► Product development teams, design for
manufacturability teams, value
engineering teams
► Japanese “whole organization”
approach
► No organizational divisions
Manufacturability and
Value Engineering
► Benefits:
1. Reduced complexity of the product
2. Reduction of environmental impact
3. Additional standardization of components
4. Improvement of functional aspects of the product
5. Improved job design and job safety
6. Improved maintainability (serviceability) of the
product
7. Robust design

Cost Reduction of a Bracket
via Value Engineering
Figure 5.5

Issues for Product Design
► Robust design
► Modular design
► Computer-aided design (CAD)
► Computer-aided manufacturing (CAM)
► Virtual reality technology
► Value analysis
► Sustainability and Life Cycle Assessment
(LCA)

Robust Design
► Product is designed so that small

variations in production or assembly
do not adversely affect the product
► Typically results in lower cost and
higher quality

Modular Design
► Products designed in easily segmented

components
► Adds flexibility to both production and
marketing
► Improved ability to satisfy customer
requirements

Computer Aided Design (CAD)
► Using computers to
design products and
prepare engineering
documentation
► Shorter development
cycles, improved
accuracy, lower cost
► Information and designs
can be deployed
worldwide
Extensions of CAD
► Design for Manufacturing and Assembly
(DFMA)
► Solve manufacturing problems during the
design stage
► 3-D Object Modeling
► Small prototype
development
► CAD through the
internet
► International data
exchange through STEP
Computer-Aided
Manufacturing (CAM)
► Utilizing specialized computers and

program to control manufacturing
equipment
► Often driven by the CAD system
(CAD/CAM)

Benefits of CAD/CAM
1. Product quality
2. Shorter design time
3. Production cost reductions
4. Database availability
5. New range of capabilities

Virtual Reality Technology
► Computer technology used to develop
an interactive, 3-D model of a product
from the basic CAD data
► Allows people to ‘see’ the finished
design before a physical model is built
► Very effective in large-scale designs
such as plant layout

Value Analysis
► Focuses on design improvement

during production
► Seeks improvements leading either to
a better product or a product which can
be produced more economically with
less environmental impact

Sustainability and Life Cycle
Assessment (LCA)
► Sustainability means meeting the needs of
the present without compromising the
ability of future generations to meet their
needs
► LCA is a formal evaluation of the
environmental impact of a product

Product Development
Continuum
► Product life cycles are becoming
shorter and the rate of technological
change is increasing
► Developing new products faster can
result in a competitive advantage
► Time-Based Competition

Product Development
Continuum
External Development Strategies
Figure 5.6 Alliances
Joint ventures
Purchase technology or expertise
by acquiring the developer
Internal Development Strategies

Migrations of existing products
Enhancements to existing products
New internally developed products
Internal Cost of product development Shared

Lengthy Speed of product development Rapid and/
or Existing
High Risk of product development Shared
Product Development
Continuum
► Purchasing technology by acquiring
a firm
► Speeds development
► Issues concern the fit between the
acquired organization and product and
the host
► Joint Ventures
► Both organizations learn
► Risks are shared
Product Development
Continuum
► Through Alliances
► Cooperative agreements between
independent organizations
► Useful when technology is developing
► Reduces risks

Defining a Product
► First definition is in terms of functions
► Rigorous specifications are developed
during the design phase
► Manufactured products will have an
engineering drawing
► Bill of material (BOM) lists the
components of a product

Monterey Jack Cheese
(a) U.S. grade AA. Monterey cheese shall conform to the following
requirements:
(1) Flavor. Is fine and highly pleasing, free from undesirable flavors and odors.
May possess a very slight acid or feed flavor.
(2) Body and texture. A plug drawn from the cheese shall be reasonably firm.
It shall have numerous small mechanical openings evenly distributed
throughout the plug. It shall not possess sweet holes, yeast holes, or other
gas holes.
(3) Color. Shall have a natural, uniform, bright and attractive appearance.
(4) Finish and appearance—bandaged and
paraffin-dipped. The rind shall be sound,
firm, and smooth providing a good
protection to the cheese.
Code of Federal Regulation, Parts 53 to 109,

General Service Administration

Product Documents
► Engineering drawing
► Shows dimensions, tolerances, and
materials
► Shows codes for Group Technology
► Bill of Material
► Lists components, quantities and where
used
► Shows product structure

Engineering Drawings
Figure 5.8

Bills of Material
Figure 5.9 (a) BOM for a Panel Weldment
NUMBER DESCRIPTION QTY

A 60-71 PANEL WELDM’T 1
A 60-7 LOWER ROLLER ASSM. 1
R 60-17 ROLLER 1
R 60-428 PIN 1
P 60-2 LOCKNUT 1
A 60-72 GUIDE ASSM. REAR 1
R 60-57-1 SUPPORT ANGLE 1
A 60-4 ROLLER ASSM. 1
02-50-1150 BOLT 1
A 60-73 GUIDE ASSM. FRONT 1
A 60-74 SUPPORT WELDM’T 1
R 60-99 WEAR PLATE 1
02-50-1150 BOLT 1

Bills of Material
Hard Rock Cafe’s DESCRIPTION QTY
Hickory BBQ Bacon Bun 1
Cheeseburger Hamburger patty 8 oz.
Cheddar cheese 2 slices
Bacon 2 strips
BBQ onions 1/2 cup
Hickory BBQ sauce 1 oz.
Burger set
Lettuce 1 leaf
Tomato 1 slice
Red onion 4 rings
Pickle 1 slice
French fries 5 oz.
Seasoned salt 1 tsp.
Figure 5.9 (b) 11-inch plate 1
HRC flag 1

Group Technology
► Parts grouped into families with

similar characteristics
► Coding system describes
processing and physical
characteristics
► Part families can be produced
in dedicated manufacturing cells

Group Technology Scheme
(b) Grouped Cylindrical Parts (families of parts)
(a) Ungrouped Parts
Grooved Slotted Threaded Drilled Machined
Figure 5.10
Group Technology Benefits
1. Improved design
2. Reduced raw material and purchases
3. Simplified production planning and
control
4. Improved layout, routing, and machine
loading
5. Reduced tooling setup time, work-in-
process, and production time

Documents for Production
► Assembly drawing
► Assembly chart
► Route sheet
► Work order
► Engineering change notices (ECNs)

Assembly Drawing
► Shows exploded
view of product
► Details relative
locations to show
how to assemble
the product
Figure 5.11 (a)

Assembly Chart
R 209 Angle
1
Left
R 207 Angle SA bracket A1 Identifies the point of
2 1 assembly
Bolts w/nuts (2)
production where
3 components flow into
R 209 Angle subassemblies and
4 ultimately into the final
Right
R 207 Angle SA bracket product
5 A2
2 assembly
Bolts w/nuts (2)
6
Bolt w/nut
7
R 404 Roller
8 A3
Lock washer Poka-yoke
9 inspection
Part number tag
10 A4
Box w/packing material Figure 5.11 (b)
11 A5

Route Sheet
Lists the operations and times required to
produce a component
Setup Operation
Process Machine Operations Time Time/Unit
1 Auto Insert 2 Insert Component 1.5 .4
Set 56
2 Manual Insert Component .5 2.3
Insert 1 Set 12C
3 Wave Solder Solder all 1.5 4.1
components
to board
4 Test 4 Circuit integrity .25 .5
test 4GY

Work Order
Instructions to produce a given quantity of a
particular item, usually to a schedule
Work Order
Item Quantity Start Date Due Date
157C 125 5/2/08 5/4/08
Production Delivery
Dept Location
F32 Dept K11

Engineering Change Notice
(ECN)
► A correction or modification to a
product’s definition or documentation
► Engineering drawings
► Bill of material
Quite common with long product life cycles,

long manufacturing lead times, or rapidly
changing technologies

Configuration Management
► The need to manage ECNs has led to
the development of configuration
management systems
► A product’s planned and changing
components are accurately identified
and control and accountability for
change are identified and maintained

Product Life-Cycle
Management (PLM)
► Integrated software that brings together
most, if not all, elements of product design
and manufacture
► Product design
► CAD/CAM, DFMA
► Product routing
► Materials
► Assembly
► Environmental

Service Design
► Service typically includes direct
interaction with the customer
► Process – chain – network (PCN)
analysis focuses on the ways in
which processes can be designed
to optimize interaction between
firms and their customers

Process-Chain-Network (PCN)
Analysis
Figure 5.12

Analysis
▶ Direct interaction region includes process steps
that involve interaction between participants
▶ The surrogate (substitute) interaction region
includes process steps in which one participant
is acting on another participant’s resources
▶ The independent processing region includes
steps in which the supplier and/or the customer
is acting on resources where each has
maximum control

Analysis
▶ All three regions have similar operating issues
but the appropriate way of handling the issues
differs across regions
▶ Service operations exist only within the area
of direct and surrogate interaction
▶ PCN analysis provides insight to aid in
positioning and designing processes that can
achieve strategic objectives

Adding Service Efficiency
▶ Service productivity is notoriously low
partially because of customer
involvement in the design or delivery
of the service, or both
▶ Complicates product design

▶ Limit the options

▶ Improves efficiency and ability to meet
customer expectations
▶ Delay customization
▶ Modularization
▶ Eases customization of a service

▶ Automation
▶ Reduces cost, increases customer
service
▶ Moment of truth
▶ Critical moments between the customer
and the organization that determine
customer satisfaction

Documents for Services
► High levels of customer interaction

necessitates different
documentation
► Often explicit job instructions
► Scripts and storyboards are other
techniques

First Bank Corp. Drive-up
Teller Service Guidelines
• Be especially discreet when talking to the customer through the
microphone.
• Provide written instructions for customers who must fill out forms
you provide.
• Mark lines to be completed or attach a note with instructions.
• Always say “please” and “thank you” when speaking through the
microphone.
• Establish eye contact with the customer if the distance allows it.
• If a transaction requires that the customer park the car and come
into the lobby, apologize for the inconvenience.

Application of Decision Trees
to Product Design
► Particularly useful when there are a
series of decisions and outcomes
which lead to other decisions and
outcomes

Application of Decision Trees
to Product Design
Procedure
1. Include all possible alternatives and
states of nature - including “doing
nothing”
2. Enter payoffs at end of branch
3. Determine the expected value of each
branch and “prune” the tree to find the
alternative with the best expected value

Decision Tree Example
(.4)
Purchase CAD
High sales
(.6) Low sales
Hire and train engineers
(.4)
High sales
(.6)
Low sales
Do nothing
Figure 5.13
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD – 500,000 CAD cost
High sales
$1,000,000 Net
$800,000 Revenue
(.6) Low sales – 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
Hire and train engineers – $20,000 Net loss
(.4)
High sales
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
(.6)
Low sales
Do nothing
Figure 5.13
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
$388,000 High sales
$1,000,000 Net
$800,000 Revenue
– 500,000 CAD cost
(.4)
High sales
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
= $388,000
(.6)
Low sales
Do nothing
Figure 5.13
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
$388,000 High sales
$1,000,000 Net
$800,000 Revenue
– 500,000 CAD cost
$365,000
$2,500,000 Revenue
(.4) – 1,250,000 Mfg cost ($50 x 25,000)
High sales – 375,000 Hire and train cost
$875,000 Net
$800,000 Revenue
(.6) – 400,000 Mfg cost ($50 x 8,000)
Low sales – 375,000 Hire and train cost
Do nothing $0 $25,000 Net
$0 Net Figure 5.13

Transition to Production
► Know when to move to production
► Product development can be viewed as
evolutionary and never complete
► Product must move from design to production
in a timely manner
► Most products have a trial production period
to insure producibility
► Develop tooling, quality control, training
► Ensures successful production

Transition to Production
► Responsibility must also transition as the
product moves through its life cycle
► Line management takes over from design
► Three common approaches to managing
transition
► Project managers
► Product development teams
► Integrate product development and
manufacturing organizations

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

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Design of Goods

PowerPoint slides by Jeff Heyl

© 2014 Pearson Education, Inc. 5-4

© 2014 Pearson Education, Inc. 5-5

© 2014 Pearson Education, Inc. 5-8

The objective of the product decision

© 2014 Pearson Education, Inc. 5 - 10

© 2014 Pearson Education, Inc. 5 - 11

Introduction Growth Maturity Decline

© 2014 Pearson Education, Inc. 5 - 13

© 2014 Pearson Education, Inc. 5 - 14

► Product design begins to

© 2014 Pearson Education, Inc. 5 - 15

► Competitors now established

© 2014 Pearson Education, Inc. 5 - 16

► Unless product makes a special

© 2014 Pearson Education, Inc. 5 - 17

► Lists products in descending order

© 2014 Pearson Education, Inc. 5 - 19

© 2014 Pearson Education, Inc. 5 - 20

Product Specifications Scope for

© 2014 Pearson Education, Inc. 5 - 21

© 2014 Pearson Education, Inc. 5 - 22

Target values Weighted

Your team has been charged with

© 2014 Pearson Education, Inc. 5 - 24

House of Quality Example How to Satisfy

© 2014 Pearson Education, Inc. 5 - 25

House of Quality Example How to Satisfy

High number of pixels How to Satisfy

© 2014 Pearson Education, Inc. 5 - 26

House of Quality Example How to Satisfy

High relationship Technical

House of Quality Example How to Satisfy

Low electricity requirements

High number of pixels

© 2014 Pearson Education, Inc. 5 - 28

House of Quality Example How to Satisfy

Our importance ratings 22 9 27 27 32 25

© 2014 Pearson Education, Inc. 5 - 29

House of Quality Example

Our importance ratings 22 5

© 2014 Pearson Education, Inc. 5 - 30

House of Quality Example

Failure 1 per 10,000

Us 0.5 75% yes 2 ok G

Low electricity requirements

High number of pixels

Failure 1 per 10,000

© 2014 Pearson Education, Inc. 5 - 34

© 2014 Pearson Education, Inc. 5 - 36

© 2014 Pearson Education, Inc. 5 - 37

© 2014 Pearson Education, Inc. 5 - 38

► Product is designed so that small

© 2014 Pearson Education, Inc. 5 - 39

► Products designed in easily segmented

© 2014 Pearson Education, Inc. 5 - 40

► Utilizing specialized computers and

© 2014 Pearson Education, Inc. 5 - 43

© 2014 Pearson Education, Inc. 5 - 44

© 2014 Pearson Education, Inc. 5 - 45

► Focuses on design improvement

© 2014 Pearson Education, Inc. 5 - 46